November 2023 - Monthly Update
Kaitlyn Richardson - Nov 01, 2023
Listen Here:
Hope this note finds you and your family well as we enter the home stretch of 2023.
Your portfolio posted gains in October. It remains with positive performance over the past 12 months.
Investment markets are stabilizing as a consensus builds around a peak in over night interest rates and a cooling of inflationary pressures in North America. We expect the leadership of U.S. stocks to continue. A strong, stable, growing U.S. economy is good for North America and the world.
The economic trajectory of the United States (U.S.) economy is diverging from Canada’s. In hindsight, it looks more and more like the U.S. experienced their slowdown in the first quarter (Q1) of 2023. Canada has been in a slowdown for two quarters now (Q2 & Q3).
U.S. Gross Domestic Product (G.D.P.)
Q1 +2.2%
Q2 +2.1%
Q3 +4.9%
Canada G.D.P.
Q1 +2.6%
Q2 -0.2%
Q3 +0.2%
The most likely outcome is the lead that the U.S. has over Canada economically will continue to grow.
What about medium to long term? There has been a 150% increase of investment in the manufacturing capacity (factory construction) in the U.S. since the start of the pandemic in 2020. The percentage increase over that time in Canada? 0%.
The scale of Canada’s economy relative to the U.S. will grind lower as the future unfolds. Also, the vast majority of Canada’s fiscal programs occurred at the beginning pandemic and have largely tapered off.
Meanwhile in the U.S., three of their major fiscal programs: the infrastructure bill, inflation reduction act and manufacturing semiconductors domestically (CHIPS) are in the early days and will continue to stimulate domestic U.S. economic activity through the end of this decade and beyond.
Higher growth translates into greater opportunity for businesses that operate in that environment.
We continue to expect overnight interest rates in Canada to be cut ahead of the U.S. next year. The motivation in Canada will be to protect the economy on the downside whereas interest rate cuts in the U.S. will be fuelling the cycle of economic growth that is already underway.
These long-term trends reinforce our existing investment strategy to prefer stocks in the U.S. and bonds and bond-like stocks in Canada.
You and your investments are in a strong position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“
US stocks were unable to shake off September weakness last month as the S&P 500 [declined again] during October. Interest rates continued to dominate the list of worries as the constant maturity 10-Year Treasury yield rose another [0.4%] and at one point nearly crossed the 5% mark. All told, the S&P 500 finished October roughly 9% lower than its 2023 closing high on 7/31 and this marked the first three-month losing stretch since early 2020. Despite these trends, we continue to believe investors are overreacting to the stock market implications of higher interest rates and we still expect the market to rebound in the final two months of the year given what continues to be a resilient economic and corporate earnings backdrop, in our view... The S&P/TSX declined [in October] and is now down... year to date. In fact, the TSX is underperforming the S&P 500 by over 10% year to date, the sharpest underperformance since 2015. Despite this sharp underperformance, we continue to believe Canada is well positioned for an extended period of NORMALIZATION that we expect to unfold over the coming years. As we have written about extensively, valuation normalization favours Canada longer term and should likely add downside protection during periods of heightened volatility. However, we also believe the broadening out of equity performance should and will benefit Canadian equities heading into and in 2024. In fact, the concentration of US Equity performance in the mega-cap stocks has been a key defining characteristic of global equity performance so far in 2023. As such, we believe as US equity market performance broadens out heading into and during 2024, and investor confidence improves from the current dreadful levels, such trends will also benefit Canadian equity performance. Overall,
while 2023 has been a disappointing year for Canadian equities, our work suggests a lot of negativity is already priced into Canadian equities. As such, Canada remains well positioned for the broader normalization we expect to unfold in North American markets over the coming years, particularly as valuations revert and equity performance broadens out.”
Stocks in your portfolio that made a new 52 week high this past month:
None
Stocks in your portfolio that made a new 52 week low this past month:
Bristol-Myers*, CN Rail*, Fortis*, Kraft Heinz*, Royal Bank*, TD Bank*, Telus*, United Parcel Service*
The Loonie declined by a cent and a half versus the U.S. dollar to:
$0.72
Thank you,
Ian, Gab, Kaitlyn & Nataliia